Euro “clearing”: Liability and Location 

Discussion paper from Kangaroo Group Member Graham Bishop

"The key interest rate contracts cleared in the UK are more than 50 times UK GDP, and 10 times the Eurozone’s GDP. Put starkly: €117 trillion of euro derivatives may have to be supported by liquidity based on the ECB’s €0.011 trillion capital and that of National Central Banks."

read whole artice below


Euro “clearing”: Liability and Location


16 January 2017

This issue of `clearing’ is likely to come to a head quickly once Article 50 Notice of `intention to leave’ is served by the UK - as a direct consequence of the G20 commitment to ensure there are no more taxpayer-funded bailouts of EU financial institutions. Post Brexit, Eurozone Member States are likely to be very concerned about capital market activities denominated in euro that – in a crisis – could create liabilities for their taxpayers. At that stage, UK-based financial firms will not be subject to EU law and therefore outside the ECB’s ability to enforce any necessary managerial change – unless the UK agrees to surrender control to EU institutions. 

However, it is very disturbing to an outsider that, eight years after the Lehman crash, there are still good grounds for concern in a systemic crisis– especially flowing from the “clearing” of euro:

ESMA 2016 stress test “A CM defaulting in one CCP would also be considered to be in default in all CCPs, in which it is a member, leading to more than 25 CM defaulting EU-wide…” 

The Commission’s December 2016 CCP Resolution Proposal “No Member State has yet developed a full national regime for CCP recovery and resolution which fully complies with the G20-endorsed FSB principles, including as regards the need for effective coordination and oversight against cross-border spill-overs.”

The magnitude of the risks are extraordinary: The key interest rate contracts cleared in the UK are more than 50 times UK GDP, and 10 times the Eurozone’s GDP. Put starkly: €117 trillion of euro derivatives may have to be supported by liquidity based on the ECB’s €0.011 trillion capital and that of National Central Banks. Any resultant credit losses would be a major political concern for Eurozone taxpayers, governments and Parliaments.

Does the EU27/ECB need to “do” anything further about Brexit? The ECB’s post-Brexit re-statement of its “oversight policy” provides a powerful analysis – implicitly - of the post-Brexit situation when it would have no powers to “induce change” in critical offshore financial market infrastructures. Once the Article 50 Notice has been served, all UK firms will be fully aware that their “EEA Authorisation” will expire at the moment of Brexit so they will need to make their own plans to continue their EU business.

The working assumption must be that the UK will not be a part of the European Economic Area (EEA) so any bespoke arrangement (normally taking the form of a Treaty) may require significant adjustment to many EU Directives and Regulations. The much-discussed “transitional arrangements” for UK firms might not be “in force” before 2023, given the necessary legislative processes. As risk-averse clients recognise the new risks, they may exercise their freedom to move their derivative positions to CCPs in a market where they can have a high degree of confidence that the ECB would supply liquidity in a crisis.

A major loss of derivatives business could worsen the UK’s balance of payments deficit by a third from its current record deficit - even at modest profitability levels for the derivative book. Parliament should require the BoE to analyse and publish the balance of payments implications in detail.

Strasbourg, 7. July 2016

 

Eurocorps as a pilot project for the European Defence Union

 

Discussion Paper on the basis of a meeting of the Kangaroo Group

with General Ramirez

 

 

The decision of the United Kingdom to leave the European Union makes it necessary to rethink the European Union from the beginning. We have to ask ourselves what the citizens really expect from the European Union. In the past seventy years the European Union has made a major contribution to the security and prosperity of the European nations.

 

The European Internal Market is a success story. We now have to build a European Internal Market without GB. Major adaptations will be necessary with an external customs border towards Great Britain and a European Financial Market of the 27 Member States.

 

The Euro has become second most important currency of the world. In the present turmoil it has shown a remarkable stability. However, on the long run Monetary Union will not be possible without a Political Union, since it cannot exist without a high degree of solidarity and security. Therefore, a Common Foreign and Security Policy is a centre piece of any Political Union.

 

The global strategy of Frederica Mogherini is an excellent analysis where we stand on the way towards a European Defence Union. It also contains useful proposals for the next steps to be taken. If we want to make a stronger contribution to our own security we need a permanent headquarter for planning and conducting European operations.

 

We also have to make sure that the soldiers who are sent into dangerous operations have adequate equipment, especially for situational awareness, navigation, telecommunication and transport.

 

We also have to analyse the differences in the social situation of soldiers who are engaged in the same missions.

 

On this path we need a strong symbol. The strongest possible symbol for a Common Security and Defence Policy is the Eurocorps in Strasbourg. We therefore propose to make the Eurocorps a pilot project for the future European Defence Union, while keeping its close connection with Nato.

 

In the past, Europe was often in the position to start new projects in a smaller group. It is therefore a fortunate coincidence that the Eurocorps is run by the framework nations France, Germany, Spain, Belgium, Luxembourg and later on Poland. A very good combination of large, medium and small countries, which is well suited for a pilot initiative.

 

These countries should put the Eurocorps at the permanent disposal of the European Union. At the same time the capabilities of the Eurocorps should be improved in order to make sure that they can carry out successful operations in the geographical neighbourhood of the European Union.

 

The Eurocorps should become the preferred Headquarter for operations of the European Union. Its capabilities for situational awareness, navigation, protected telecommunications and transport should be strengthened. Pilot projects concerning these capabilities could be financed from the means available in the European Budget for Security and Defence Research.

 

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160706 - Discussionpaper Ramirez-1.pdf
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This article was published in

EUROPE DIPLOMACY & DEFENCE

The Agence Europe Bulletin on CSDP and NATO

No. 802

11 June 2015 page 2

Original-Download in English and French see below

 

Karl von Wogau, Secretary General of the Kangaroo Group

 

Permanent structured cooperation and the multinational corps

 

 

The future European Defence Union should be built around the already existing multinational corps in Strasbourg, Stettin and Münster. The former, known as Eurocorps, comprises forces from France, Germany, Belgium, Spain and Luxembourg, and is devoted to the European Union as well as NATO missions. The Northeast corps in Stettin brings together military from Germany, Poland and Denmark and is affiliated to NATO. In Münster, the German Dutch army corps is also qualified as high readiness forces headquarters for NATO. All these military structures have demonstrated their value in developing multinational culture, training and interoperability, but their capabilities have not yet been used in an adequate way to the benefit of the European Union.

A major new step towards a common defence, as envisaged in the treaty, requires strong political will and a real change in mindset. There is little chance of achieving such a result at 27. One should therefore consider the possibility of starting with a smaller group of member states, bearing in mind that it will remain open to newcomers whenever they are willing and able to join the pioneers. This, of course, is exactly what the treaty has foreseen with the establishment of so-called permanent structured cooperation. The multinational corps should be the visible nucleus of this cooperation.

Progress in the European Union has always been made around visible symbols: the internal market around the open borders and monetary union around the euro. A permanent structured cooperation without a visible goal would be like Hamlet without the Prince. Therefore the multinational corps and the development of their capabilities should be at the centre of our future efforts.

The recently discussed idea to develop capabilities around Germany, France and possibly other nations developing all the necessary capabilities for autonomous action while giving smaller nations the possibility to join their efforts with them (“Anlehnungspartnerschaften”) would in reality be a step backwards. It is an illusion to think that one of the European nations alone would be able to develop these all-round capabilities and it would lead away from the necessary common European effort.

We have to accept that the Common Security and Defence Policy will be developed at two speeds. However, there are many useful things that can be agreed upon by all the Member States including Great Britain. As an example, I would mention the development of an internal market for defence goods. We have seen that the European legislation concerning defence procurement and the transfer of defence goods between member states was passed with the agreement of the United Kingdom.

Other projects like the Eurodrone go forward on the basis of agreements between member states. But we have to avoid the error that they can be run without the involvement of Europe. The national administrations are not very keen to involve the European institutions in projects concerning defence equipment. But the defence administration of Germany had to learn at great cost that it is not possible to use drones like the Eurohawk in European airspace without involving the European authorities from the beginning.

Therefore, the European Union should concentrate its efforts on projects where the utilisation of the instruments of the European Union is not only useful but absolutely necessary. This concerns the certification of drones and their admission to the European airspace as well as the security aspects of European projects concerning satellite navigation, observation and telecommunication. Such projects as Galileo, Copernicus and others can be financed by the budget of the European Union.

From one meeting of the European Council to the next, further progress can be achieved on standardisation, certification, space assets, security of supply, research and the so called pooling and sharing projects. However, we have to move beyond this step-by-step approach and pave the way to more substantial and long term cooperation. In other terms, we need to reflect on how to go forward with a permanent structured cooperation covering all aspects of capability planning, development and acquisition. The multinational corps would fit perfectly in this framework and could thus be adapted to the current far more demanding security environment that requires robust, agile and rapidly deployable forces for territorial defence, in application of mutual assistance and full complementarity with NATO, as well as the full spectrum of crisis management.

 

Article in English
EDD802EN20150611.pdf
PDF-Dokument [160.6 KB]
Article in French
EDD802FR20150611.pdf
PDF-Dokument [168.5 KB]

Karl von Wogau, Secretary General of the Kangaroo Group

 

Do we need a European Army?

 

Jean-Claude Juncker advocates the creation of a European Army. Angela Merkel, Ursula von der Leyen and many others have supported this idea, although everybody knows that there is still a long way off. Is this just wishful thinking or will we see a concrete follow up to these declarations? Do we really need a European Army? Moreover, how can we build it up?

First elements of answer will be given at the European Council in June where Heads of State or Government will have European Defence on their agenda.

Events in Ukraine, in North Africa, the Mediterranean and the Middle East have changed the strategic environment of the European Union. When we discussed the European Security Strategy in 2003, we could say that Europe had never been so prosperous, so free nor so secure. Today, we live in an environment that has become unpredictable. We will therefore have to spend more on defence. Of course, we also have to spend better.

The 28 Member States of the EU spend about € 190 billion per year on defence. This is more than twice the defence spending of Russia, but we know that we would not be able to defend ourselves without the assistance of the United States. And a Continent which is rich but unable to defend itself leads a dangerous life.

We permanently expect from our American allies that they risk the lives of their soldiers and their citizens for the security of Europe. In the current international insecurity and turmoil, Europe cannot escape the responsibility to carry a larger part of the burden.

The European External Action Service is a valuable instrument for common foreign and defence policy, although it has not fully been used in the last legislative period. The new High Representative, Federica Mogherini, has now the chance to build a comprehensive security and defence policy combining the means of diplomacy, development, neighbourhood policy and armed forces. She has proposed to launch the drafting of a new “Foreign Affairs and Security Strategy”. Such an exercise is strongly needed to assess the threats and opportunities, to better define the European interest and the level of strategic autonomy that is needed for Europe to become a reliable security provider.

To this end, the EU needs more efficient proceedings for crisis management. This can only be achieved through the simplification of the decision process for the planning of operations, the creation of a permanent EU command capability, and greater funding flexibility. Furthermore, we need to fill the main capability gaps that have been identified. This comprises strategic transport, air-to-air refuelling, RPAS and their admission to the airspace as well as the security aspects of European projects concerning satellite navigation, observation and telecommunication. We have seen that projects like Galileo or Copernicus can be financed by the European budget. The preparatory action on CSDP related research, which should see the light of day by 2017, will lead from 2021 on to a defence research program with an estimated allocation of some €1,4 billion over seven years.

This of course remains insufficient if there is not a clear will of Member States to address all these issues through more cooperation, more pooling and sharing, more coordinated procurement planning, common standards, certification, maintenance and upgrading. One could also mention common training, pooled logistics and in-theatre support. This is key if Europeans want to achieve greater solidarity and interoperability. To get there, the Treaty provides the right tool: the so called permanent structured cooperation. It would make a tremendous change in the cooperation among Member States and between them and the European institutions. Even a small group of countries could launch this permanent structured cooperation and thus pave the way to a European Army.

Download here
20150511_Do_we_need_European_Army.pdf
PDF-Dokument [105.5 KB]

Expectations for the Defence Summit

 

The next European Council dedicated to defence should take place in June 2015 and give new impetus to the work started in December 2013. The latest terrorist attacks in France and the numerous crisis and conflicts in our neighbourhood, from Sahel to the Middle East and Eastern Ukraine, have deeply modified our security environment compared to the picture set out in the 2003 EU security strategy. The European Council should back the proposal made by Federica Mogherini to launch the work on a new “Foreign Affairs and Security Strategy” which can only be useful if it defines clear European interests and priorities regarding both external relations and the security and defence dimension.

 

The current security landscape is a clear wake-up call for more cooperation in the military as well as in the civilian security sector. European leaders should refrain from taking political commitments they will never adhere to. What we need is more coordination in capability planning and better spending through joint procurement, common certification, training, maintenance and upgrading. The EU needs more efficient proceedings for crisis management. This can only be achieved through the simplification of the decision process for the planning of operations, the creation of a permanent EU command capability, and greater funding flexibility. To this end, a first step should be to adopt the Athena mechanism review.

 

Due to the long lasting reluctance of member states to cooperate and renewed competition among institutions, there has been almost no progress on the main topics identified in December 2013: satellite communications, remotely piloted aircraft systems, air-to-air refuelling, and cyber security. We expect support from European heads of state and/or government for the roadmap adopted by the European Commission in June 2014, the preparatory action on CSDP-related research, and the pooling and sharing projects developed by the European Defence Agency, as well as stronger coordination between internal and external security, more intelligence sharing, the strengthening of Frontex, and the development of a more efficient internal market for defence.

 

discussed: Working Group Space, Security & Defence - 20/01/2015, Brussels

published: Agence Europe - 25/01/2015

Here you can download this contribution
KG_papers_20150125_Expectations_for_the_[...]
PDF-Dokument [99.6 KB]

The future of the European Security and Defence Policy

Contribution for the Berlin Security Conference 2014

 

Events in the Ukraine have changed the strategic environment of the European Union. When we discussed the European Security Strategy in 2003 we could say that Europe had never been so prosperous, so secure nor so free and that the violence of the first half of the 20th Century had given way to a period of peace and stability unprecedented in European history. Concerning our eastern neighbourhood the document shortly said that large-scale aggression against any Member State is now improbable and then went on to the other threats with which we are confronted.

The European Security Strategy 2003 remains a remarkable document since it formulates the basic endeavours of our foreign and security policy. But the events in Ukraine have demonstrated that the security situation of the European Union has profoundly changed. Therefore, ...

 

Here you can download this contribution

Berlin_Security_ Conference 2014.pdf
PDF-Dokument [102.6 KB]

  A European Home Market for Security and Defence goods

 

At a conference of the association mars-mercurius in Strasbourg Karl von Wogau, Secretary General of the Kangaroo Group, called for the creation of a European Internal Market for security and defence goods.

 

About 7500 persons participate in missions under the European Security and Defence Policy, 3000 soldiers and 4500 civilian personnel. It is the responsibility of the European Institutions to make sure that they dispose of the adequate equipment for observation, telecommunication, navigation and transport fore their dangerous missions. ...

 

Here you can download the whole article

Better spending in Security and Defence through more Cooperation

 

Discussion Paper for the December Defence SummitIn December 2013 the heads of state and government will meet for the first time since 2008 to discuss defence and security issues. This European Council has the aim of making specific progress towards a more common defence policy as foreseen b the Lisbon Treaty.

 

Recalling these aspirations for common defence and considering the success of the Internal Market, the Kangaroo Group calls on the heads of state an government to launch, as part of a sustained endeavour, common specific and realistic projects in the field of capabilities.

 

Recent events have shown that the EU and the member states still do not have at their disposal key capabilities necessary to achive the goals of the European Security Strategy. Main deficits concern ...

Here you can download the whole discussion paper
Paper_Dec_Sum.pdf
PDF-Dokument [116.6 KB]

Forum on Intellectual Property, Counterfeit, Contrabrand and Organised Crime

 

"Cybercrime: Where lies the big money online?"

 

- Jean Bergevin the Head of Unit for DG Internal Market and Services discussed the inhibiting factors that succeed in slowing down the fight against intellectual property crime. He pointed towards the current fragmented legal framework within the EU, business practices often used that lead people to dangerous websites, and the continuing new technological developments which create an environment where online criminals can thrive. Beyond this Mr. Bergevin warned ...

Here you can download the whole article
20130220_IPFORUM_conclusions.pdf
PDF-Dokument [144.3 KB]

Working Group on Space, Security & Defence

 

"Humanitarian Help in the Sahel Zone"

 

Statement of Agnes VENEMA, Programme Coordinator EastHumanitarian Help in the Sahel ZoneWest Institute / Parliamentarians Network for Conflict Prevention ...

Here you can download the statement
WGDEF20130320_statement.pdf
PDF-Dokument [108.3 KB]

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Recent Publications

Euro “clearing”: Liability and Location 

Discussion paper from Kangaroo Group Member Graham Bishop

"The key interest rate contracts cleared in the UK are more than 50 times UK GDP, and 10 times the Eurozone’s GDP. Put starkly: €117 trillion of euro derivatives may have to be supported by liquidity based on the ECB’s €0.011 trillion capital and that of National Central Banks."

read whole artice below


Euro “clearing”: Liability and Location


16 January 2017

This issue of `clearing’ is likely to come to a head quickly once Article 50 Notice of `intention to leave’ is served by the UK - as a direct consequence of the G20 commitment to ensure there are no more taxpayer-funded bailouts of EU financial institutions. Post Brexit, Eurozone Member States are likely to be very concerned about capital market activities denominated in euro that – in a crisis – could create liabilities for their taxpayers. At that stage, UK-based financial firms will not be subject to EU law and therefore outside the ECB’s ability to enforce any necessary managerial change – unless the UK agrees to surrender control to EU institutions. 

However, it is very disturbing to an outsider that, eight years after the Lehman crash, there are still good grounds for concern in a systemic crisis– especially flowing from the “clearing” of euro:

ESMA 2016 stress test “A CM defaulting in one CCP would also be considered to be in default in all CCPs, in which it is a member, leading to more than 25 CM defaulting EU-wide…” 

The Commission’s December 2016 CCP Resolution Proposal “No Member State has yet developed a full national regime for CCP recovery and resolution which fully complies with the G20-endorsed FSB principles, including as regards the need for effective coordination and oversight against cross-border spill-overs.”

The magnitude of the risks are extraordinary: The key interest rate contracts cleared in the UK are more than 50 times UK GDP, and 10 times the Eurozone’s GDP. Put starkly: €117 trillion of euro derivatives may have to be supported by liquidity based on the ECB’s €0.011 trillion capital and that of National Central Banks. Any resultant credit losses would be a major political concern for Eurozone taxpayers, governments and Parliaments.

Does the EU27/ECB need to “do” anything further about Brexit? The ECB’s post-Brexit re-statement of its “oversight policy” provides a powerful analysis – implicitly - of the post-Brexit situation when it would have no powers to “induce change” in critical offshore financial market infrastructures. Once the Article 50 Notice has been served, all UK firms will be fully aware that their “EEA Authorisation” will expire at the moment of Brexit so they will need to make their own plans to continue their EU business.

The working assumption must be that the UK will not be a part of the European Economic Area (EEA) so any bespoke arrangement (normally taking the form of a Treaty) may require significant adjustment to many EU Directives and Regulations. The much-discussed “transitional arrangements” for UK firms might not be “in force” before 2023, given the necessary legislative processes. As risk-averse clients recognise the new risks, they may exercise their freedom to move their derivative positions to CCPs in a market where they can have a high degree of confidence that the ECB would supply liquidity in a crisis.

A major loss of derivatives business could worsen the UK’s balance of payments deficit by a third from its current record deficit - even at modest profitability levels for the derivative book. Parliament should require the BoE to analyse and publish the balance of payments implications in detail.

Original Text by Graham Bishop
Euro clearing 550 word article_FINAL.pdf
PDF-Dokument [108.8 KB]

Eurocorps as a pilot project for the European Defence Union

 

Discussion Paper on the basis of a meeting of the Kangaroo Group with General Ramirez

 

The decision of the United Kingdom to leave the European Union makes it necessary to rethink the European Union from the beginning. We have to ask ourselves what the citizens really expect from the European Union. In the past seventy years the European Union has made a major contribution to the security and prosperity of the European nations.

read more ...

Future of the Eurocorps

 

At a meeting with members of the Eurocorps in Strasbourg Karl von Wogau, Secretary General of the Kangaroo Group and Honorary Member of the European Parliament, stated that the Eurocorps should be moved into the center of the Common Security and Defence Policy. It should become the Preferred Headquarter of the European Union. Moreover its five framework nations France, Germany, Spain, Belgium and Luxembourg should take the decision to put the Eurocorps at the permanent disposal of the European Union.

read more ...

...

In the present discussion about Monetary and Political Union the opinion is often heard that a Political Union consists in total harmonization. But this is certainly not what we want to achive. The strength of Europe is its variety and the peaceful competition between its Member States. On the contrary the hard core of a Political Union is a common foreign and defence policy.  ...

 

read more ...

 

 

The Role of the Multinational Corps

 

The European Council in June has not been very encouraging for those who believe in the necessity of an autonomous Security and Defence Policy of the European Union. Public attention was taken by the problems of Greece and the drama of the refugees in the Mediterranean. The discussion about Security and Defence took only a very short time.

read more ...

Europe War and Peace

 

The author looks at general rules for peace preservation from Kant, Fukuyama, Einstein and Freud as well as Henry Kissinger and tries to draw conclusions for the present security situation of Europe. The presentation was in October 2015.

more ...

Monetary Union and Political Union

 

The author refers to Jean-Claude Juncker and Angela Merckel who have requested the creation of a European Army. He claims that the hard core of a Political Union is a common foreign and defence policy. He criticizes .......

... read more